I somehow went almost an entire month without pimping my latest Wired feature, which appears in the March issue (alongside Joel Johnson‘s excellent cover story on the Foxconn suicides). The piece is a deeply reported essay that tackles a tricky business proposition: For companies that make products out of atoms, does manufacturing in China and other low-cost countries still make sense?
The answer depends on where your firm exists in the economic food chain. As I make clear in the story, I have no expectation that that iPad 3 will be made in the U.S.A.; Apple and other titans of industry have the muscle to make Chinese outsourcing work in their favor. But the equation is a lot muddier for smaller companies—”the innovative guts of America’s technology industry,” as I term them in the piece. Though American manufacturers still can’t compete on price alone, the math is evening out to the point that smart companies are carefully weighing the pros and cons of staying home. And the biggest pro, of course, is the ability to control quality:
“If you’re a huge company like Apple, you can get the whole factory to work for you,” says Paul King, founder of Hercules Networks, a New York company that makes charging kiosks for mobile devices. “You can put your own process in place, you can have your own quality control. But without that kind of power, you’re just another customer, and they don’t really care.” King cycled through three Chinese factories from 2008 to 2010 before giving up on offshoring due to persistent manufacturing errors—LCDs that winked out after six months, lights that broke when tapped even gently. The quality woes have disappeared now that Hercules is making its kiosks in the US, King says, and the company is thriving.
To deal with their production backlogs, many Chinese factories have started subcontracting work to facilities located in the center and western areas of the country, where labor costs are cheaper than on the industrialized coasts. But this usually makes the problems even worse. “They’ll subcontract your work without providing the subcontractor with the same training that you provided to them,” says George T. Haley, a professor of industrial and international marketing at the University of New Haven who specializes in Chinese business. “Then all of a sudden, your quality assurance goes all to hell.”
On a personal note, this piece grew out of some of the Grand Empress’s experiences manufacturing lingerie abroad. I’ve seen firsthand how production delays and quality flaws can set back a young business, often at the worst possible time. As it turns out, Wired editor-in-chief Chris Anderson was on the same wavelength; his side company, 3D Robotics, now manufactures in the U.S., and couldn’t be happier with its decision. We both felt there was a story here, and plenty of lessons to be learned for American start-ups.
If you have even the vaguest interest in the business realm, I hope you’ll check out the piece and offer some feedback in comments. Unlike the typical Microkhan fare, there is no mention of Papua New Guinea, livestock management, or pyramid schemes. But that’s not necessarily a bad thing.